IB Economics/Macroeconomics/Distribution of Income
Appearance
Distribution of Income
[edit | edit source]Purpose of taxes
[edit | edit source]- to raise gov. revenue
- to narrow the gap between rich and poor e.g progressive tax
- to safe guard health e.g. tax in cigarettes, alcohol
- influence consumer spending e.g. lead free petrol
- to control the economy (fiscal policy)
- to control externalities
- to stop/ reduce imports (tariffs)
Types of Taxes
[edit | edit source]- direct taxation: income tax
- indirect taxation: tax that is included in expenses, levied on good/service and not on individual or organization
- progressive taxation: tax increases as income increases, the bigger your income, the larger % you pay of tax
- proportional taxation: tax percent remains constant regardless of income e.g. 10%
- regressive taxation: tax increases as income decreases, the bigger your income, the smaller % you pay of tax
- Profit Tax: a tax on the firms profits. Usually there are different rates for smaller and larger firms
- Wealth Tax: A tax on your wealth on an annual basis
- Inheritance tax/ Death Duties/ Estate Duties: when you die you leave behind an estate, the gov. taxes these estates
- Gift Tax/ Capital Transfer Tax: a tax on large gifts
- Capital Gains tax: a tax on the gain you make between buying and selling something. Usually refers to shares
- Transfer payments: payment by government as gift or aid and not for good or service.
Higher level topics
[edit | edit source]- Laffer curve: a graph showing the relationship between tax rate and government revenue
- Lorenz curve: a graph showing the distribution of wealth in the economy.
- Gini coefficient: a number between 0 and 1 quantifying the distribution of wealth in the economy. 1 is perfectly unequal distribution and 0 representing perfectly equal distribution.